The Economics of Injunctive and Reverse Settlements

Abstract:     
This paper extends the economic literature on settlement, and draws some practical insights on reverse settlements. The key contributions to the economic literature on settlements follow from the distinction drawn between standard settlements, in which the status quo is preserved, and injunctive settlements, which prohibit the defendant’s activity. The analysis identifies the conditions under which injunctive settlements (rather than standard settlements) are likely to be observed and the conditions under which reverse settlements will be observed among the injunctive settlements. Specifically, reverse settlements are likely when the stakes associated with the injunction are large relative to damages and litigation costs. The analysis of settlement here has broader implications for efficient remedies and legal rules.

Number of Pages in PDF File: 23

Keywords: reverse settlements, injunctive settlements, economics of litigation and settlement, antidumping litigation, patent antitrust, patent infringement, nuisance settlements, private and social incentives to litigate

JEL Classification: K00, K21, K41

working papers series